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On Monday, the Italian populist government should respond to the Commission's concerns, but analysts are unlikely to see the coalition change course given its promises to voters to increase their social assistance spending.
The Eurosceptic Italian coalition government, composed of the right-wing Lega party led by Matteo Salvini and the five-star anti-establishment movement led by Luigi Di Maio, wants to reduce taxes, reduce pension reforms, introduce a universal income and introduce an amnesty tax to fight against tax evasion.
But such measures should bring Italy's budget deficit to 2.4% in 2019, thus turning around in relation to the 0.8% target promised by the previous government.
The Commission and investors are already worried about Italy's large debt, which corresponds to 131.2% of its gross domestic product, according to Eurostat data for the year. first quarter of 2018, making it the second-largest euro-zone country behind Greece.
Italian Deputy Prime Minister Luigi Di Maio said Saturday that Italy would explain its financial plans in Brussels. "We recognize the European institutions and we will sit at the table to discuss the reasons behind our financial measures," he said, adding that these measures are "very important for the Italian people".
If Italy's budget is rejected, it follows a three-week trading period during which a potential deal could be found on how to reduce the deficit (Italy should basically resubmit an amended draft budget). Otherwise, sanctions could be taken against Italy.
Lorenzo Codogno, founder and chief economist at LC Macro Advisors, told CNBC that the rejection of spending plans by Brussels was an "agreed deal" – but that it was unlikely that Italy would change Cpl.
